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State of the TPA Industry + Forecast for 2007

This year's report & forecast comes in two parts.  This piece is the candid report & advice to TPA firms about their operations.  The second piece is a speech I gave right after the Congressional elections to a group of lobbyists & business CEOs describing the legislative & regulatory landscape, and how various factors are predicted to play out.

1.  During mid-2006, there was a lot of defeatism among TPAs, with moaning & groaning about how unbeatable the fully-insured competitors are.   Yes, it is a very tight squeeze, but you have the advantage of staying power.   A dozen years ago, the "unbeatable" competitor taking over the world was the mega managed care menace.  Soon, they couldn't support their unrealistic  pricing, and also became a public pariah because  of the perceived cuts in care.  Soon, TPAs were getting "refugee" clients from unpopular HMO & managed care plans. 

Your competitors fully-insured who are on-the-risk have to live with the financial results of their marketing strategy.  If they "buy" business, reality is going to come home to roost.  They can't support that for long, and especially if they have stockholders & investors expecting steady profits.  When profits stop, their investors demand a retreat back to profitable parameters.

Heck, the truth of the matter is that it was this kind of retreating and fiddling around by insurers with what markets to pursue or dump that made the boom in self-funding possible.  In the early Ô80's, insurer bureaucracy seemed to change monthly about what kinds of clients to pursueÉand which market segments to abandon.   Many employers in the 50-500 size felt jerked around.  Back then, the idea of having self-funding for employers below 1,000 lives brought scoffing laughter.  Often, it was clients who prodded insurance agents to become TPAs  and then design for them a self-funded plan.   So, don't surrender to gloom & doom.  We'll be gloating about these days in a few years. 

I am happy to report that the SPBA Fall 2006 Meeting stemmed the defeatism.  The focus was solutions and successful strategies, which resulted in many money-making ideas and competitive strategies being provided and discussed.

2.  Some TPAs not remaining on the cutting edge is showing up as a form self-defeating cost-cutting or maybe just laziness.   Growth & profitability depend on your maintaining traditional energetic TPA innovation to technology and new products and new markets.  We're seeing too many TPAs who seem to be just jogging in place, yet wondering why they aren't moving ahead.  As proven by the SPBA Fall Meeting, there are TPAs overcoming the challenges and obstacles about which others just complain.  Yes, the TPA business is exhausting, but you can and you need to be a cutting-edge winner.  Don't let your firm just coast downhill.  That strategy will leave you at the bottom.

3.  There is an odd situation of TPAs putting the TPA firm at financial risk & legal liability unnecessarily in some cases.....yet assuming they (the TPA) don't have responsibility in other casesObviously, both are counter-productive and should be avoided.

TPAs sometimes insert themselves into processes, contracts or procedures (PPOs, UR, the money process) in a way that makes the TPA seem to be the "payer" or contractee or responsible.  I understand how it evolves, and how it can seem easier at the time. I also know that many vendors who don't understand the intricacies of ERISA and benefits want to run things through the TPA. However, when something doesn't go as planned, guess who is in the bulls eye for responsibility & liability.  Carefully think through all your services & procedures (including with tangential vendors).  Be sure that you aren't setting yourself up as a sucker to be left holding the bag.

Conversely, some TPAs are suffering wishful-thinking delusions.  They assume the renewal contract of various services (PPOs,  vendors, Stop-Loss, etc.) say what their wishful thinking hopes it says, and that no new zingers were slipped in.  Most of the "Bill Collector" woes & lawsuits trace back to this kind of wishful thinking assumption of not reading or thinking what the really actually says/means.

 So, as you deal with more and more vendors, this can be a growing cancer in your firm.  Don't get so over-eager to get your firm as an agent of the vendor or as the contractee.  When things start to go sour, you'll be the chump left holding the legal & financial liability.  (We get lots of calls from members in that trap.)  Conversely, have multiple people in your firm very very carefully read the contracts and any new language.  We've also heard of at least one PPO who circumvented the broker & TPA, by sending a letter directly to the client saying, (essentially) "If you'd like even lower costs, please sign here".  That na•ve signature became acceptance of a contract change that led to big bucks and making the TPA look bad.

Also don't be na•ve and think that Stop-Loss in general and especially processing time to receive advance payment has some exalted legal status that puts all other laws & timeframes on hold.  Not so!!!  To DOL/ERISA and other laws, Stop-Loss is pretty much an irrelevant  extra*.....carrying about the same relevance as if the employer has fire insurance.  *This is especially true (irrelevancy) when the Stop-Loss policy is owned (premium & beneficiary) by the employer.  Carefully read the pieces on the SPBA member website about Stop-Loss ownership.  Go to ERISA Fiduciary Issues & Types of Plans, and then to the Fiduciary Issues sub-section and "Stop Loss Owners Clarify".

4.  Be sure you are informed.  >>>Know what your plan language says.  It's amazing how many people deeply involved in administering and steering plans aren't even sure if there is plan language and where the plan document might be.  Yikes!!!  The same answer to about half of the "Is the plan allowed to....?" questions we receive is:  The answer is in the plan language.  >>>Know who is officially in charge of your client plan.  It is the person(s) named or described in the plan language as the Administrator, Fiduciary, or Trustee(s).  You need to know who that is, and you should have an ongoing relationship with that person, because when there is a question, you want the answer from that person(s), or at least a very strong first-hand feeling that whomever you deal with on a day to day basis is authorized to act for the Administrator/Fiduciary/Trustee(s).  If you don't know who the person(s) is, and you don't have a trusted relationship & communication channel with your official client boss, everything you do is suspect in a fiduciary perspective, because you're cruising blind. ( See  "A Handy Way to Remember Who is Administrator & Fiduciary on the member website un the ERISA, Fiduciary Issues & Types of Plans category and at the top of the Fiduciary Issues sub-category.)   >>>Know the details of what your administrative contract says.  You are only authorized to do what the client delegates in the contract.  If things get testy, even if you did something with the best of intentions, if you acted beyond the plan language, you could be in trouble.  >>>The TPA should rarely be "making" decisions.  You apply the wording of the plan language and you implement interpretations of that language by the official plan sponsor/trustee Administrator, but "you" should not be "making decisions" or "setting policy".  Model yourself on lawyers, who advise and draft, but the client makes the final call on whether to plead guilty or not guilty.

In closing, this memo may seem like tough love, but the Founders of SPBA and pioneers of self-funding had the uphill battle of even having their product & service recognizedÉand they had to be better than everyone else to earn respect.  Today, self-funding and TPAs are widely known and widely respected, and SPBA has tried to position you to be the best-informed players.  However, if you don't watch your business carefully, and if you fall into wishful thinking fantasies, and if you don't show energy to be innovative in your practices and new ways to apply your skills to new markets and new profit centers, and if you don't invest the time & money to keep informed on the cutting edge, you'll just fade into failure.